By Nick Carey - Analysis
CHICAGO (Reuters) - David Pepper has lost the faith.
Pepper, a long-time devotee of both General Electric Co (GE.N) shares and buying stocks and holding them, said that GE’s recent stock slide has destroyed his faith in the stock and the company’s management -- and has caused him to question his overall investing strategy.
“I used to have so much faith in this company I wanted to own GE shares for the rest of my life and pass them on to my heirs,” said Pepper when asked about GE and its besieged chief executive, Jeffrey Immelt. “But shareholders have paid a heavy price for the excesses of management, which have sadly led to the rapid decline of the crown jewel of the S&P 500.”
“Immelt needs to go,” he added.
Pepper, 32, a certified public accountant in Southern California, began buying GE shares around a decade ago. Until recently, GE common stock comprised roughly 10 percent of his non-retirement investment portfolio.
Pepper is one of GE’s legion of retail investors. It is one of the most widely held U.S. companies and retail investors hold around 40 percent of GE’s shares.
But now Pepper wants out.
“I‘m going to wait until the (U.S. government) stimulus package gives GE a brief lift,” he said. “Then, I‘m going to sell out before the next leg down.”
Although GE shares have rallied this week, including a 14 percent climb on Thursday, the stock is still down about 75 percent from its 12-month high of $38.52 last April. The drop is due mainly to troubles at financial arm GE Capital, which has been hit by the global financial crisis. The plunging stock and GE’s recent slashing of its dividend by 68 percent caused much gnashing of teeth in investors like Pepper.
A series of recent interviews with GE retail investors like Pepper showed a fair amount of anger and frustration among longstanding shareholders, though not all of it pointed so directly at Immelt.
But the shine has definitely come off the once stellar reputation of GE, with its vaunted “deep bench” of top-notch managers. Back in September 2001, when Immelt took over from Jack Welch, his iconic predecessor, most investors believed GE could do no wrong.
That has changed.
“It’s a toss-up, I‘m not really sure whether I could say it’s all Immelt’s fault,” said Gil Michalek, 79, a GE retiree who has thousands of shares and used the quarterly dividend to bolster his pension. “But it’s clear (that) mistakes were made.”
Michalek, who worked for GE for 39 years, said those mistakes have wiped out most of his net worth.
”The reduction in the dividend is killing me, to be honest,“ he said. ”What I really want to know right now is, where is Jack Welch?
“Jack has gone awfully quiet all of a sudden,” he added.
The dividend cut has resulted in two purported class-action shareholder lawsuits against GE. They allege that Immelt violated securities law by stating unequivocally on January 23 that GE would maintain its quarterly dividend, a month before the cut.
‘A RISK WORTH TAKING’
Newer shareholders are generally more philosophical as they have not lost as much, with some still intent on buying more GE shares at bargain-basement prices.
Candice Jensen lives in the western suburbs of Chicago and bought her first GE shares on February 19. She bought again on February 27 -- less than an hour later, GE slashed its dividend.
She now has a total of 350 shares and has lost money on the first batch she bought. But Jensen said she wants to buy more.
“The dividend cut wasn’t a total surprise, I don’t know how they could maintain it with the current share price where it is,” she said.
Jensen recently lost her job. Her husband works as a human resources manager and she wishes she had money to spare.
“If I had more cash right now, I’d continue to be a buyer,” she said. “GE shares are trading like the financials and I don’t think that’s necessarily accurate.”
“Of course, there is a risk GE could go under -- anything could happen in this environment,” Jensen added. “But it’s a risk worth taking that will pay off in two to three years.”
Burke Bagwell, 34, lives in South Florida, and provides signage and graphics for large retail chains. He bought 100 GE shares in mid-January at around $12.75.
”My primary reason for buying GE was the dividends they have offered in the past, plus the hopes of their stock rebounding,“ he said. ”With GE I certainly haven’t taken the hit some have, I will definitely hold onto it and hope for better days to come.
“But due to the dividend decrease I will not be buying additional stock,” he added.
Asset managers like Peter Jankovskis, co-chief investment officer at Oakbrook Investments which holds about 1.7 million GE shares, say worries about GE’s financial unit and criticism of Immelt were excessive.
“I think (Immelt) has done as good as he could in this environment,” he said.
But at the end of the day, how well or badly GE’s management team has performed may not matter to investors who have seen their nest eggs fried, said Tom Lydon, president of Global Trends Investments and editor of ETFtrends.com.
“Whether it’s GE or someone else, a lot of retail investors are staying on the sidelines and hoping things will get better,” he said. “At some point they’ll decide they can’t take it anymore and sell.”
“We’re not quite at that point yet,” he added.
Additional reporting by Nick Zieminski; editing by Patrick Fitzgibbons and Matthew Lewis